Given the economic and fundamental backdrop, yesterday’s sharp sell-off was somewhat perplexing. Central banks started to lower interest rates, which was a confident sign that recession had been avoided. China’s tacit admission of failing to revive its economy and the resultant introduction of monetary stimulus was greeted with an audible sigh of relief. Perennial geopolitical tension is also seen as supportive. Yesterday’s weekly EIA report on US oil inventories was yet another bullish element to contemplate. Commercial stocks plunged by 15 million bbls as every major category drew with crude stockpiles plummeting to their lowest in 2 ½ years. Implied demand as measured by products supplied by refiners has risen to 21.39 mbpd, the second-highest reading since last August.

It looked like the price drop was nothing more than technical selling. The temptation to buy into this dip could have been strong. The move lower, however, not only continued this morning but accelerated. In the space of little over 2 hours, prices plunged nearly $3/bbl as the nuclear supply bomb was dropped by Saudi Arabia. The Financial Times reported that the kingdom, possibly frustrated with the ineffectiveness of the producer group’s output policy, is ready and willing to go ahead with the gradual unwinding of the 2.2 mbpd of voluntary cuts from December and as such to re-think its price target of $100/bbl. A monthly increase of 180,000 bpd might seem manageable, particularly when set against OPEC’s own oil balance estimates. Yet, the move is deemed a clear sign that market share, within and outside the OPEC+ group, is becoming an overwhelming priority even if it means prolonged depressed prices. The kingdom’s energy ministry has not replied to the FT’s request to comment but doubtlessly the decision, if it does go ahead, will be a something of a game-changer. Oil balance and price forecasts will have to be re-evaluated and the top end of the current trading range possibly be lowered.

Continuous Reliance on Oil

The yawning chasm in demand predictions for 2024 and 2025 is frequently mentioned on the pages of this report when the updated monthly oil balance estimates are released. The difference in views lies in the distinctive and somewhat biased interpretation of the impact of the transition from fossil fuel to renewable energy. Demand prospects remain widely non-aligned for the long term, too. Demand for oil will peak around 2030 when supply capacity will exceed projected global consumption by 8 mbpd, the IEA predicts. This estimate will most plausibly be confirmed on October 16, when this year’s World Energy Outlook is published. OPEC, in its updated World Oil Outlook, which covers the energy landscape throughout 2050, and which was issued on Tuesday, is equally reluctant to amend its view. It is the latter we take a thorough look at below.

The optimism on the protracted need for oil rests on the assumptions that developing nations, particularly India, Africa and the Middle Eastern countries, will rely on oil for the next 25 years to cover the lion’s share of their energy needs as the population grows and urbanization becomes ever so prevalent. By 2045 the globe will consume 118.9 mbpd of oil. It is an upward revision of nearly 3 mbpd on last year. This demand will grow by an additional 1.2 mbpd during the following 5 years, to 2050. For the medium-term, lower interest rates and subsiding inflationary pressure mean that the 2029 demand forecast was upgraded from 111.5 mbpd in 2024 to 112.3 mbpd. It compares with the IEA’s estimate of 105.6 mbpd. Given the persistent view on healthy consumption OPEC calls for an investment of $17.4 trillion for the period ending 2050.

The world’s energy demand will increase from 301.1 mboe/d in 2023 to 364.4 mboe/d in 2045 and to 374.1 mboe/d by 2050 as the global economy expands 2.9% annually. It is a yearly demand growth rate of 0.8% or 34% over these 27 years. Oil’s share of the mix remains steady. Last year it made up 30.9% of the total and will decline marginally to 29.2% by 2050. The biggest loser is coal, whose share between 2023 and 2050 will halve from 25.9% to 13.1%. Gas will remain resilient as the size of its pie of the hole will inflate from 23% to 24%. Nuclear, hydro and biomass energy will also undergo a slight increase. The real winner, at least in percentage terms, will be the ‘other renewables’ category, such as wind and solar, as its role in the total mix will grow from 3.2% to 14%.

Oil consumption will rise by 17.9 mbpd or 18% between 2023 and 2050, from 102.2 mbpd to 120.1 mbpd. This growth rate is considerably less than the 34% registered in the total energy mix. Demand in OECD countries will contract by 10.1 mbpd or 22% because of declining population and a hastening transition. Conversely, the thirst for oil from developing nations will grow relentlessly, from 56.6 mbpd to 84.6 mbpd, a rate of 50%. India will demand 8 mbpd more oil in 2050 than in 2023, the leader in this field whilst the Middle East and Africa will both experience a growth rate of 4.4 mbpd. Curiously, Chinese demand will only expand by 2.5 mbpd in these 27 years. India, whose demand for oil stood at only 32% of that of China last year will increase its weight to 70% against the second-largest economy in the world by 2050.

The growth of 17.9 mbpd in global oil demand is comprised of an increase of 9.6 mbpd in light products, 7.5 mbpd in middle distillates and 800,000 bpd in heavy products. In the first category, the widespread use of LPG in the residential, industrial and petrochemical sectors will result in a demand increase of 31%. The slowing down of EV penetration will support gasoline demand to 2030, which will jump from 27.1 mbpd in 2023 to 29.5 mbpd. It will, however, plateau afterwards and peak at 29.6 mbpd in 2050 since the sales of EVs will ultimately accelerate. In the middle of the barrel the solid growth of the aviation sector will underpin healthy jet fuel consumption in the same way as the transportation segment of the market, particularly the stable increase in the number of commercial vehicles, will ensure a decent advance in diesel demand. Naturally, the above abstract will be eagerly compared with the updated IEA findings due in the middle of next month.
 

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